Another Day in Court, Another Loss for Big Banks

District Court Judge Denise Cote strikes a blow against a handful of banks in their fight against Fannie Mae and Freddie Mac.

In the latest news out of the "federal government suing big banks for horrible mortgages," the U.S. District court in Manhattan denied requests by Bank of America (NYSE:BAC) and Citigroup (NYSE:C) to dismiss lawsuits filed against them by the Federal Housing Finance Agency. The lawsuits were filed because of the sale of mortgage bonds to Fannie Mae and Freddie Mac during the run-up to the financial crisis in 2008.

B of A and Citi weren't alone in having their requests denied, with Credit Suisse (NYSE:CS) and HSBC (NYSE:HSBC) also feeling the rejection from District Judge Denise Cote, who has been in the news a lot lately as she ruled on numerous cases regarding the FHFA, which regulates both Fannie Mae and Freddie Mac.

Bad week for B of A This came on the heels of MBIA (NYSE:MBI) changing the terms of its debt earlier this week to avoid possible default, which irritated Bank of America, which is tangled in numerous legal disputes with the insurer. In order to get more favorable terms on its debt, MBIA pretty much bribed current bondholders with its own money, offering $10 for each $1,000 in debt held, as well as repurchasing $170 million in debt from those that consented.

Both companies have been fighting with each other over who owes what to whom and how to best resolve the whole situation. Bank of America believes the "billions of dollars" that MBIA used to restructure the debt could have been used to satisfy Bank of America's claims, while MBIA feels that Bank of America should honor it obligations to buy back mortgages, and that doing so would help "reduce the uncertainty about MBIA's ability to pay claims." This doesn't appear to be a situation that will resolve itself anytime soon.

What does it all mean?Bank of America has been digging itself out of similar issues for much of the past few years, so it is no stranger to the inside of a courtroom. With former general counsel Brian Moynihan at the helm, the bank should continue to weather the storm, with hopes that it will all be behind them sooner rather than later. But it is definitely something that bears watching.